User Guide: Setup > Loan Setup > Interest Plan
NLS Interface
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Interest Plan

The Interest Plan feature allows you to set up interest schedules that may be used on loans and on blocks of loans. If the interest plan is modified, the change to the interest set-up is reflected on all of the loans that are part of that interest plan.

Interest plans are configured in Setup > Loan Setup > Interest Plan.


To add a new Interest Plan, click Add. Enter a name and description for the Interest Plan, and click OK.

Once the Interest Plan has been added, it must be configured similarly to any interest entry on a loan, or on a template.

Main Tab

The Main tab has the most commonly used settings for interest object setups.

Interest Type Displays the Interest Type set in the Add Step dialog (click Add to open the Add Step dialog). This field is for display only and is not editable.
Base Rate or Tiered Rate Select from any available base or tiered interest rate schemes that have been defined in the Base Rate or Tiered Rate sub-category of the global Loan Setup. If no rate schemes are defined this field is not editable and will default to NONE. If NONE is selected the interest rate will be determined by the value of the Interest Rate field.
Base Rate Spread A spread modifies the base rate for the interest object by summing the value of the base rate and any adjustments. Adjustments may be a positive or negative value.
Choose from <FIXED> or a base rate spread as configured in Loan Setup - Base Rate Spread.
Spread This field is not editable when a pre-configured base rate spread is selected.
Although a spread amount may be entered when the Base Rate Spread is <FIXED>, it is recommended that the Additional Adjustments field be used instead, leaving the Spread option available if a spread setup is required in the future.
Spread Basis Choose Current Principal, Loan Amount, or Credit Line as the basis for the spread.
Additional Adjustments Enter any ± adjustments to be made to the base interest rate.
Interest Rate Sets the APR for the interest object when no Base Rate is selected.
Default Interest Period Defines when the loan is considered to be in default. This setting is only used when an interest object is set to an Interest Type of Default Interest While in Default or Default Interest Until Maturity. If the Default Interest Period is set to Days, then the loan will be considered to be in default when any payment is past due by the number of days in the Default interest Days field. If a different period, such as months or quarters, is specified then the loan will be considered to be in default when it is past due by that period (e.g. one month of one full quarter).
Variable Tab

Variable interest rates in NLS are controlled by a combination of the selected base rate and the rate change information in the Variable tab of the template (or loan). When a rate change event occurs, the system will check the selected base rate index and if a new interest rate is specified, the system will apply the new rate until the next rate change event occurs, at which time the index will again be selected. If the interest rate changes more than once between rate change events, only the latest rate will be applied.

The Variable tab contains the parameters necessary to control rate change events and notifications for a variable interest rate loan. These settings work in conjunction with the selected base rate in the Main tab and are not available unless a base rate is selected. NLS provides for setting two different rate change triggers on templates, an Initial Rate Change, which determines the first date on which the loan will check the base rate index for a rate change, and Subsequent Rate Changes, which determines how the system will derive the dates for all future checks against the base rate index.

Available in NLS 4.10.8

Rate Change Notice Document, when selected will generate a Word DOC document during a rate change. The generated document is stored in Document Printing.

Clicking on …… for either Initial Rate Change or Subsequent Rate Changes will open the Date Parameters dialog. This dialog sets all of the parameters necessary to define when a rate change event occurs. Because these parameters are date dependent and a template should be set up so that it can be used at any time a loan is added, it is often ineffective to set the rate change date parameters on the template. In that case, they must be set on a loan-by-loan basis when each variable rate loan is added.

Type defines the method by which the date of a rate change is determined.

Not Applicable disables the rate change event and all other fields in the Date Parameters dialog. If the Initial Rate Change is set to Not Applicable, Subsequent Rate Changes will be disabled, and the interest rate will be set to the current value of the selected base rate as of the origination date of the loan when it is added.

If type is set to Relative From Origination Date, the rate change event will occur when the duration defined by the Period and # of Periods fields has elapsed since the origination date of the loan. Relative From Origination Date is intended for use with the Initial Rate Change, and although it is possible to select this type for Subsequent Rate Changes, we do not recommend doing so, because it will only trigger a rate change event once. If a periodic rate change is required, Subsequent Rate Changes should be set to a type of Relative to Initial Rate Change. This type is only available for Subsequent Rate Changes and functions in the same manner as Relative From Origination Date, except that the period is relative from the last rate change.

The last type, Fixed Date, is possible to use on a loan template, however we recommend against this practice because a loan may be added at any time using the template, even after a fixed date would become invalid. As mentioned in the section above, if the rate changes are to be defined with a fixed date, then they must be defined as each loan is entered, not on the template.

When type is set to Relative From Origination Date or Relative to Initial Rate Change, the total time between rate change events is defined by the Period and # of Periods fields. # of Periods sets the number of cycles, as defined by the Period field, between rate change events.

Example

If Period is set to Monthly, # of Periods is set to 3, and Type is set to Relative From Origination Date for the Initial Rate Change, then the first possible rate change for the loan would be 3 months from the origination date of the loan.

Day Value allows the loan to force a rate change to a specific day of the month. N/A ignores the setting of day value, allowing the rate change to occur as defined by Period and # of Periods. Force Negative will cause the rate change to roll back to the date selected.

Example

If Day Value is set to 5/Force Negative and the rate change is scheduled to occur on June 2, the rate change will actually occur on May 5.

Force Positive will make the rate change jump forward to the selected day value. Force Neutral will force the rate change to the selected day in the current month.

Example

If Day Value is set to 15/Neutral, a rate change will occur on the 15th of June regardless of whether the change was scheduled to happen on the 1st or the 31st of June.

Note

The day value is only functional with a relative rate change type and will not be available when type is set to Fixed Date.

Date sets an absolute date for the rate change when Type is set to Fixed Date. While this setting is functional with loan templates, it is not recommended because of possible conflicts when the date selected on the template becomes earlier than the origination date of a loan added with the template. For loans that require a fixed date for a rate change we recommend entering the date information at loan input time instead of in the template.

When the date parameters are set for a rate change the box to the right of …… will display a description of when the rate change will occur in plain English.

Example

If the Initial Rate Change was set to TypeRelative From Origination Date, PeriodMonthly, # of Periods3, and Day Value1/Force Negative, the description would display “Advance 3 month(s) relative from origination date, Force backward to 1st day of the month.”
Constraints Tab

The Constraints tab contains the settings for interest limits when a variable interest rate is used.

Cap Rate Defines the maximum interest rate for the loan.
Floor Rate Sets the minimum interest rate for the loan.
Maximum Change Per Adjustment Sets the maximum rate change for each single rate change event.
Maximum Change Per Year Limits the total amount by which the rate can be adjusted in one calendar year (January 1st through December 31st).
Maximum Change Per Life Limits the total amount by which the rate can be adjusted, effectively creating another cap and floor rate for that loan which are based on the initial rate.
Minimum Change Sets the minimum amount by which the rate can change at one time.
Compounding Tab

The Compounding tab contains the controls for setting up compound interest on a loan.

Type The compounding types available are: None, Periodic Compounding, and Compounding When Past Due.

None: There is no compounding of interest on the loan.

Periodic Compounding: Each day’s interest is accrued on the sum of the principal balance plus whatever portion of the interest was accrued as of the last compounding date.

Compounding When Past Due: All interest is compounded whenever the loan is past due.

Period Only available for Periodic Compounding. Defines the compounding period.
# of Periods Only available for Periodic Compounding. Used with Period to determine the compounding period.

Example

If a loan is to compound interest every five days, the period could be set to days and the number of periods set to 5.
First Date Defines the first date on which the loan is to be compounded. The Period and # of Periods then determine the subsequent dates from that point.

Variable Rate Example

This is an example on how to set up a loan with a base rate to use a variable rate interest based on the loan’s outstanding principal amount.

Query the loan and from the View menu select Loan Setupselect Loan > Loan Setup from the ribbon bar.

Click …… next to Current Rate to open the Interest Rate dialog.

Delete the current interest rate by selecting it in the left pane and click Delete.

Click Add to add a new interest rate.

Set Step Type to Amount and enter the maximum amount of principal in the To field for which to apply this interest rate. The minimum amount, From field, is set to 0 and cannot be changed for the initial step. Click OK.

Select the base rate to be used from the drop down list and enter a spread or additional adjustment as needed.

Click the Variable tab then click …… to set the date the loan is to be eligible for the initial rate change and do the same for subsequent rate changes.

Click Add to add additional rate change steps for different principal amounts and interest rates as needed and click OK when finished.

Note

When adding additional steps, the From field will automatically be populated but can be edited. If the amount in either the From or To field overlap an existing entry, the values on the existing entries will be adjusted accordingly.


Updated: 2019.01.24


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